Date
21 September 2017
The Netherlands will be led by a moderate center-right coalition, an affirmation of political moderation which will be good for the country and Europe. Photo: Reuters
The Netherlands will be led by a moderate center-right coalition, an affirmation of political moderation which will be good for the country and Europe. Photo: Reuters

Europe’s Dutch turning point

Last week, Dutch voters dealt a blow to far-right populism in their country’s general election.

With the Euroskeptic, anti-immigration Party for Freedom (PVV), led by Geert Wilders, having managed to secure substantially fewer seats than anticipated, the Dutch outcome is a promising start to a year of critical elections in Europe.

The Netherlands will now be led by a moderate center-right coalition comprising the conservative-liberal People’s Party for Freedom and Democracy (VVD), the Christian Democratic Appeal (CDA), and the social-liberal Democrats 66 (D66). Smaller Christian parties – or, less likely, the leftist Greens – will probably round out the coalition.

Mark Rutte, the VVD leader, is likely to remain as Prime Minister.

The affirmation of political moderation will be good for the Netherlands – and for Europe. The new Dutch government is likely to continue to pursue important structural reforms, including a long-overdue overhaul of the Netherlands’ convoluted tax system.

The best approach to such reform may be to introduce a flat income-tax rate and to eliminate the complex tax-credit system, thereby making the system more transparent and efficient, while laying the groundwork for faster long-term economic growth.

Given the Netherlands’ large budget surplus, the new government will also be able to invest much more in both human and physical infrastructure – efforts that the coalition’s main parties have advocated.

The authorities are also likely to continue advancing the country’s digital agenda, which the main ministries have been working to implement since its launch last August. Continued progress in this area, where the Netherlands is already a frontrunner in Europe, will boost growth in total factor productivity.

Moreover, the new government is likely to take a critical yet constructive approach to the European Union and the euro. This means that the Netherlands is likely to support and push for solutions to the major challenges the EU now confronts, beginning with the refugee crisis.

Given that the EU’s deal with Turkey to stem the westward flows of refugees has proved fragile, the Dutch are likely to seek a more durable solution.

All of this is a far cry from the agenda promoted by Wilders, which focused on ending the Netherlands’ EU membership and closing its borders (especially to Muslims).

Dutch voters’ rejection of that agenda matters, because it could indicate that the kinds of right-wing populist rhetoric that persuaded the British to vote to leave the EU and Americans to install Donald Trump as president may be losing its allure.

If so, the chances that France’s far-right National Front, led by Marine Le Pen, or Germany’s far-right Alternative für Deutschland will win power in this year’s elections may be dwindling.

While the EU might be able to survive a Euroskeptic government in the Netherlands, it would not survive one in France or Germany.

In fact, if the EU is to move onto a more sustainable path, it will need both members of the Franco-German axis – which has always been essential to progress on European integration – fully on board, providing the kind of committed political leadership the EU has so far largely been missing.

They must be the “bearers of hope”, in the words of Max Weber, that create an anchor for economic, social, and political stability and cohesion.

In this respect, recent criticism from Trump and British Prime Minister Theresa May may actually turn out to be a good thing, because it has helped to drive France and Germany closer together.

The seemingly relentless economic challenges the EU has faced may also help to inspire committed leadership; after all, the EU has historically relied on crises to spur progress.

Nowadays, progress implies the creation of new mechanisms for coordinating the fiscal and structural policies of surplus and deficit countries.

This would require, first and foremost, effective economic-policy coordination between France and Germany – an effort that would go a long way toward restoring confidence and fostering integration within a multispeed framework.

The Dutch government also has an important role to play. Restoring confidence within Europe will demand the agreement of surplus countries like the Netherlands, along with Germany, to expand infrastructure spending (with the help of the European Investment Bank).

For their part, deficit countries like France and Italy should adopt structural reforms in labor and product markets, thereby boosting potential economic growth.

The EU is at a critical point in its history. If French and German voters follow the example of the Dutch, by choosing leaders capable of displaying real political vision and leadership, this year’s elections could be a political watershed: the moment when the Union finally begins to pursue in earnest the integration and reform that it so desperately needs.

Copyright: Project Syndicate

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RT/CG

Professor of Financial Economics at Tilburg University in the Netherlands

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